Vested interest disguised as public interest

One of the features of a capitalist economy is that vested interest frequently masquerade as public interest.  Example are not hard to find.  Australian apple growers do not want to see imports of New Zealand grown apples.  A true concern for bio-security or simply patch protection?  In New Zealand fund managers promote the great national benefits of compulsory saving how surprising.  Fonterra and Federated Farmers vehemently maintain that they should not have to pay a price on greenhouse gas emissions the taxpayer should pay for their emissions.  Biofuel producers are doing us all a great favour by lowering the CO2 content of our liquid fuels.  Never mind that the current subsidy is equivalent to about $400/tonne of CO2, compared to a current maximum price under the New Zealand emissions trading Scheme of $12.50/tonne.

These examples and many like them frequently contain an element of truth.  The difficulty is finding the balance between the public interest and the private interest.

A particularly egregious example of late is the submission to the Alcohol Reform Bill by the Hospitality Association of New Zealand (HANZ). They have an easy target.  One only has to walk along Courtenay Place in the early hours of Saturday or Sunday morning to observe that binge drinking is not an isolated problem.

Let us put aside for the moment the question of how much alcohol is too much, and how the cost of ˜too much" should be split between the individual imbiber and wider society, and assume that we have a problem.  Well it seems that HANZ has the answer.

Amongst their recommendations are that supermarkets and grocery stores should be banned from selling alcohol, and that off-licence sales should be restricted to specialist stores or to over-the-counter on-licences where staff have special training in selling alcohol.

Alcohol sales in supermarkets have seen strong growth wholesales in bars and restaurants are flat or growing only slowly (according to HANZ).  Low prices are seen as the reason.  Nothing about convenience.  Remember when milk sales in supermarkets were prohibited?

Consistent with low prices being labelled as the problem, HANZ also advocates a minimum alcohol price and bans on the advertising of price (except of course when it occurs inside licensed liquor stores).  It's not rocket science to estimate that from HANZ's perspective the small reduction in their sales that would follow the setting of minimum prices would be far outweighed by the increase in their share of the market that would follow the banning of alcohol sales by supermarkets.

Longer term, with no competition from supermarkets, and their own industry members essentially enjoying legally sanctioned cartel pricing (and so not having to compete on price amongst themselves), industry profitability would look rather good all in the public interest of course.

If a higher price on alcohol does deter excessive consumption then it should be effected by an increase in excise tax, the proceeds of which would flow to the government (perhaps for use in treating alcohol addiction problems, education programmes and so on) rather than resulting in higher profits to the industry.  The effect on the consumer is the same as with a minimum price, but there is no benefit to HANZ members.  Perhaps I missed that in their recommendations.

One might argue that in a market economy we should expect such behaviour. After all everyone would like to get as much out of the system as they legally can.  In general, this approach works reasonably well, but only if policy makers see through it.  This is not always easy as vested interest can be difficult to separate from technical expertise if one is not oneself an expert in the relevant field.

For example, the medical profession likes to promote a higher subsidy for GP visits, arguing that a community of sick people has negative consequences for everyone.  Qualitatively the argument has much merit, but deciding on the size of the subsidy, who is eligible and which types of provider should receive it is extremely challenging.

Not so long ago New Zealand's industrial policy was centred on the allocation of import licences to those deemed worthy.  For instance, we used to assemble televisions and cars.  Import protection guaranteed a nice profit for the vehicle assembly companies, all acting in the name of increasing employment.  How much of this policy was due to industry lobbying compared to the misconceived ideas of policy makers I do not know, but high import protection just meant that everybody else subsidised the assembly jobs and we drove some of the least safe cars in the developed world.

Wherever there is a trough of public largesse we can expect to find the snouts of those extolling their altruism.  So whenever you hear someone claiming that, in the public interest obviously, they deserve a subsidy, protection, or special treatment of some sort, ask yourself what's in it for them and what the real balance is between public interest and vested interest.

Enjoyed this article?

You might like to subscribe to our newsletter and receive the latest news from Infometrics in your inbox. It’s free and we won’t ever spam you.